October 7, 1996

Dear Rally's Hamburgers, Inc. Bondholder,

By now you should have received the  Company's  Consent  Solicitation  Statement
("CSS")  dated  September  9,  1996,  and other  related  materials  seeking  an
amendment to the Company's Indenture, dated March 1, 1993, pursuant to which the
Company's  9 7/8%  Senior  Notes due June 15,  2000 (the  "Senior  Notes")  were
issued.  Prior to making any decision regarding the Consent, we encourage you to
carefully  review  the  complete  CSS which  describes  in detail  the  proposed
amendment to the Indenture.  We have engaged an INFORMATION AGENT, MORROW & CO.,
INC.  (1-800-566-9061  OR 1-800-662-5200) to assist you with questions about the
Consent or provide you with additional copies of the CSS or other materials.

The Company has extended by two weeks,  until October 21, 1996,  the time during
which you may vote your Consent Form.

SUMMARY OF THE PROPOSED AMENDMENT

Consent  solicitations  were  distributed  to owners of the  Senior  Notes as of
August 16, 1996.

The  Indenture  currently  provides  that if any person (other than GIANT GROUP,
LTD.  ("GIANT"))  becomes the  beneficial  owner of 35% or more of the Company's
voting  securities,  a "Change of  Control" is deemed to have  occurred.  Upon a
Change of Control,  Rally's is required to make an offer to purchase  all of the
outstanding  Senior  Notes at a price equal to 101% of the face  amount  thereof
plus accrued and unpaid interest thereon. Upon the effectiveness of the Proposed
Amendment,  the  beneficial  ownership  of 35% or more of the  voting  stock  of
Rally's  by  GIANT,  Fidelity  National  Financial,   Inc.   ("Fidelity"),   CKE
Restaurants,  Inc.  (("Carl's Jr."),  the owner,  operator and franchisor of the
Carl's Jr. fast food restaurant chain),  and/or any of their affiliates will not
constitute a Change of Control for  purposes of Section  4.14 of the  Indenture.
Although Fidelity and Carl's Jr. have requested the Proposed Amendment,  Rally's
believes that the Proposed  Amendment is  appropriate  in light of the potential
synergies  in Rally's  relationship  with  Fidelity  and Carl's Jr. and  Rally's
future capital needs.

THE BOARD OF  DIRECTORS  OF THE COMPANY HAS  UNANIMOUSLY  APPROVED  THE PROPOSED
AMENDMENT  AND  RECOMMENDS  THAT THE HOLDERS OF THE SENIOR NOTES  CONSENT TO ITS
ADOPTION.  REGARDLESS OF WHETHER THE PROPOSED AMENDMENT BECOMES  EFFECTIVE,  THE
SENIOR NOTES WILL CONTINUE TO BE OUTSTANDING IN ACCORDANCE  WITH ALL OTHER TERMS
OF THE  SENIOR  NOTES AND THE  INDENTURE.  THE  CHANGES  SOUGHT  IN THE  CONSENT
SOLICITATION WILL NOT ALTER THE COMPANY'S OBLIGATION TO PAY THE PRINCIPAL OF AND
INTEREST ON THE SENIOR NOTES OR ALTER THE  INTEREST  RATE,  REDEMPTION  TERMS OR
MATURITY DATE THEREOF.

There is currently  outstanding  $62,076,000  principal  amount of Senior Notes,
exclusive  of amounts  held by  Affiliates,  who are not  eligible  to vote with
regard to this  consent.  In order for the  Indenture to be amended,  holders of
$31,039,000 must consent. YOUR VOTE IS VERY IMPORTANT.

Please vote today.

/s/ Donald E. Doyle

Donald E. Doyle
President, Chief Executive Officer, and Director